Takeover bids: consultation on the amendments to the current regulatory framework
Consob launches a consultation on a draft of amendments to regulation on takeover bids.
he objective is a general review of the current provisions which takes into account the implementation of the European Directive, the amendments to the Consolidated Law on Finance occurred over the last two years as well as practical experiences and comparative analysis of the international regulatory framework.
The proposals aim at strengthening minority shareholders' protection and transparency as well as at simplifying requirements and procedures in cases of takeover bids.
The most significant changes are:
a) the possibility, in case of success of the takeover bid, to reopen the offering period in order to allow shareholders who initially chose not to sell their securities to accept the offer;
b) the extension of the application of the best price rule (i.e. the obligation to fix the price of the offer at the highest price paid by the offeror) to the six months following the closure of the offer;
c) the inclusion of the purchases carried out through any derivative instrument (including cash settled ones) in order to fix the price and determine whether the 30% threshold has been exceed;
d) the involvement of minority shareholders in the application of the rules on exemption from the obligation to launch a takeover bid;
e) a more precise identification of the behaviours which entail actions in concert between the shareholders.
All market participants are invited to provide Consob with their feedbacks, also responding to the relevant questionnaire, by November 15, 2010. Consob intends to organize a public hearing within October in order to illustrate the main changes contained in the draft regulation.
An executive summary, the whole text of the proposed amendments to Regulation on Issuers, the questionnaire and the relevant enclosures are available on Consob website (www.consob.it).
EXECUTIVE SUMMARY
Over the last years, regulation of takeover bids has been the matter of several legislative interventions. Firstly EU Directive of 2004 was implemented by Legislative Decree of November 19, 2007. Subsequently, by means of a series of interventions occurred up to September 2009, some relevant changes were introduced, in particular with respect to passivity rule, acting in concert and the relevance of derivative instruments for mandatory takeover bids.
In consideration of the complexity of the legislative changes occurred and the very innovative nature of some of them, Consob decided to undertake an overall review of the regulation of takeover bids. The critical points coming from the implementation of the current regulation, together with a comparative analysis of the regulatory frameworks in different jurisdictions, have also been taken into account.
Firstly the review of the regulation aims at ensuring an higher level of protection to minority shareholders.
In this regard, specific provisions on offers launched by the target company's controlling shareholders and directors have been introduced. In case of success of the takeover bid, an obligation to reopen the offering period has been introduced so to minimize the pressure to tender shareholders face when they do not consider the price as adequate and fear a post-bid depreciation of the target company's shares. Furthermore, the issuer's public document on the suitability of the offer shall include a separate advice of the sole independent directors in order to strengthen the quality and the objectivity of the information available to the shareholders.
Moreover, the rules on disclosure and fairness to be observed during the offer period have been extended to transactions in cash settled derivatives. The application of the best price rule has been extended to the six months following the closure of the offer.
In implementing a specific legislative delegation, the notion of relevant shareholding for mandatory bids has been changed to include all derivative instruments which allow holding long positions in securities. This change is aimed at reducing the risk of takeover rules' elusion, as highlighted by the recent international cases.
Finally, the involvement of minority shareholders in the exemptions from the obligation to launch a takeover bid has been strengthened. The majority of independent shareholders' approval has been required in cases of bailout which are not related to some specific cases of a stated crisis and in case of merger.
A second set of regulatory changes aims at fostering greater dynamism of the market for corporate control and removing possible interpretative problems which may reduce the activism of bidders and investors.
The minimum period of pre-emptive offers aimed at acquiring control has been reduced from 25 days to 15 days. This provision is based on the observation that the length of the offering period may unbalance the competition between possible bidders putting at a disadvantage the initial bidder who entirely bears the costs related to the "discovery" of the takeover opportunity. As regards competing bids, the regulatory changes aim at reducing information asymmetries among the bidders by introducing an obligation for the target issuer to share with all bidders the information it might want to provide to one of them. Constraints on the determination of the essential elements of competing bids have also been relaxed by removing the obligation to offer a higher consideration than that of the original offer.
Consob's discretion in the price "adjustment" of a mandatory takeover bid and in the price determination of sell-out and squeeze-out procedures has been narrowed, relying more on the market prices.
In order to reduce uncertainty on the behaviours which may entail acting in concert for mandatory bids, the following cases have been identified: (a) cases where, until proven otherwise, it is presumed that some persons act in concert (for example in case of strict family relationships or advisory relations); (b) cases of cooperation between shareholders, aimed at exercising minorities' rights and actively participating to the governance of the companies, which do not entail acting in concert.
In elaborating the proposed regulatory changes Consob has also considered the need to keep regulatory burdens at a reasonable level. Some changes specifically aim at reducing compliance costs for the bidders, for example with respect to the provision of collaterals by the bidder and to cross-border public offers, namely on debt securities. The proposed amendments align the national regulation with the best practices at international level. For example, the application of the rules regulating public offers for sale or subscription has been allowed for public exchange offers of debt securities, overcoming the existing obstacles to an effective equal treatment of Italian and foreign investors.
